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Asia-Pacific Competition UpdateOctober 2017, Issue 20
Competition ProgrammeOECD KOREA Policy Centre Competition ProgrammeOECD KOREA Policy Centre
Asia-Pacific Competition Update
IN THIS ISSUE
Entry Point - Editorial Note p. 3
News from Asia-Pacific Competition Authorities p. 4-7
OECD Competition Committee Meetings p. 13-14
Going after Bid-Rigging Cartels p. 11-12
Competition in the Pharmaceutical Sector p. 8-10
Fighting Cartels in Public Procurement: Policy and Practice p. 15-18
The Competition Programme of the OECD/KOREA Policy Centre provides education and training to officials of Asia-Pacific competition authorities in the field of competition law and policy, and OECD/KPC organises events for judges. This newsletter includes information about our work and the work of the OECD, as well as news, case studies and reports from competition authorities in the Asia-Pacific region.
A publication of the Competition Programme, OECD/KOREA Policy Centre, 「The Asia-Pacific Competition Update」 may be reproduced with appropriate source attribution. This Newsletter is provided for information purposes only. The views expressed do not necessarily represent the views of the OECD or the KOREA Policy Centre. To subscribe, or cease subscribing to Asia-Pacific Competition Update, please send an email with your contact details to [email protected]. Further information about the Competition Programme at the OECD/KOREA Policy Centre can be found at www.oecdkorea.org and www.oecd.org/competition/seoulrcc.
As we advance into the last stretch of 2017, this is a
particularly busy period for the OECD/KPC Competition
Programme, with two workshops that will take place in
October and November and the finalisation of our Guidebook
of Competition Laws in Asia. This research publication
will be launched in the meeting of the Asian Competition
Authority leaders that will take place in Paris during the Global
Competition Forum week. As to the OECD/KPC workshops,
first up will be an event focused on practical issues in the
cartel investigations that will take place in India and is co-
hosted by the Competition Commission of India, then a
workshop on market studies, a topic that the OECD has been
working on over the last few years and where we will continue
to develop in the years to come.
The Competition Committee and the Global Competition
Forum of the OECD will be organising a week of meetings in
December in Paris that will discuss numerous topics that are
at the forefront of the discussions in antitrust across the OECD
membership but also in many other jurisdictions across the
globe. Certainly one of the most important competition events
and usually has the presence of more than 90 jurisdictions.
Of particular note for our readership will be the session on
small and developing economies agencies, as well the peer
review of the Viet Nam Competition Law and Policy. There will
also be a session dedicated to the judicial perspectives on
competition law and the role of competition in public markets.
Naturally, our papers and the contributions received will in
due time be placed online on our website: www.oecd.org/
competition.
As to this edition of the newsletter, and as promised,
this edition covers not only our usual items of news from
across the Asia Pacific region as well as a description of
the workshops that have taken place between May and
September this year, but also as a special feature an article
on Bid Rigging. This is a type of cartel that is a priority for
many jurisdictions in Asia as it directly affects the public purse
by making products more costly for the government and
ultimately the taxpayers. The OECD has done a lot of work in
this area, issued guidelines and recommendations, as well
has undertaken many different projects in several countries
across the world, helping governments to ensure more
competitive public procurement. Drawing upon all of these
experiences I have asked Despina Pachnou my colleague
at the OECD to share with us some of lessons we have
learned from undertaking such projects. I hope this can serve
jurisdictions across the Asia Pacific region to undertake their
reviews of public procurement processes to make them better
and more effective, either on their own or with the help of the
OECD.
You can find out more about our Bid Rigging work at: http://
www.oecd.org/competit ion/fightingbidrigginginpublic
procurement.htm
Have a great end of 2017!
Ruben Maximiano
Entry Point - Editorial Note
3
Asia-Pacific Competition Update
News from Asia-Pacific Competition Authorities*
Competition Commission Hong Kong Files Two Cases within 20 Months of Full Operation
Since the Competition Ordinance (Ordinance) came into full effect in Hong Kong on 14 December 2015, the Competition Commission
(Commission) has officially entered the enforcement phase of its operation achieving a number of milestones over the last 20 months.
In March 2017, just 15 months after full commencement of the Ordinance, the Commission commenced its first proceedings in the
Competition Tribunal (Tribunal) against five technology companies for alleged bid-rigging. The proceedings concern a tender related to
the supply and installation of a new IT system for a social service organisation.
In August 2017, the Commission brought its second case to the Tribunal alleging that 10 construction and engineering companies have
engaged in market sharing and price fixing practices in relation to the provision of renovation services of a public rental housing estate.
The Commission is seeking remedies including pecuniary penalties and a declaration that each party has contravened the First Conduct
Rule of the Ordinance in both cases.
Apart from active enforcement actions, the Commission also published its first Block Exemption Order (Order) in August 2017 for
vessel sharing agreements (VSAs) between liner shipping companies, subject to certain conditions. The Order was issued in light of the
Commission’s assessment of the economic efficiencies generated by VSAs and it has also taken account of the submissions received
in the various consultations earlier. The Order does not cover voluntary discussion agreements (VDAs) as it was not demonstrated that
the relevant VDA activities meet the terms of efficiency exclusion. The Order, which will remain in effect for five years, was issued in
response to an application from the Hong Kong Liner Shipping Association submitted in December 2015. The Commission is granting a
6-month grace period to allow the parties concerned to make changes to their commercial arrangements.
* News items were provided by respective Competition Authorities and their own responsibility
HONG KONG
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News from Asia-Pacific Competition Authorities
Conclusion of Cooperation Arrangement with the Authority for Fair Competition and Consumer Protection of Mongolia (15 March 2017)
The Japan Fair Trade Commission (JFTC) has concluded a Cooperation Arrangement with the Authority for
Fair Competition and Consumer Protection (AFCCP) in Tokyo. Mr. Kazuyuki Sugimoto, the Chairman of the JFTC and Mr. Lkhagva
Byambasuren, the Chairman of the AFCCP signed the arrangement. The purpose of the arrangement is to establish a framework
for constructive cooperation between both competition authorities and provide for the details concerning the implementation of the
Implementing Agreement pursuant to Agreement between Japan and Mongolia for an Economic Partnership.
Warning to the Company Dealing European Government Bond (15 March 2017)
The JFTC issued a warning to the company dealing European government bonds (Deutsche Securities Inc.). In this case, the company
was likely to be in violation of prohibition of the section 3 (unfair restraint of trade) of the Antimonopoly Act. The company exchanged
with other companies information on the customer inquiries, price, etc. with regard to European government bonds, by using the chat
function, etc. on the electronic trading platform. It also designated a successful bidder and enabling the bidder to win the bidding for the
certain transaction of European government bonds.
Release of the Report by the Study Group on the Antimonopoly Act (25 April 2017)
The JFTC released the report which the Study Group (Study Group on the Antimonopoly Act) submitted. The Study Group is consisted
of experts from various sectors, in order to reconsider the surcharge system from professional views and the Study Group has held 15
meetings since its first meeting in February 2016.
Based on the Study Group’s report, the JFTC will consider specific proposals of system revisions including ones on the surcharge
system. As a reference for its consideration, the JFTC launches a public consultation on the matters addressed in the Study Group’s
report to seek specific ideas and useful information from the various interested parties.
JAPAN
GORE Sanctioned by KFTC for Prohibiting Sales of Products Made of Gore-Tex at Large Retailers
The Korea Fair Trade Commission (KFTC) decided to impose remedies and a fine of 3.67 billion won on GORE for
prohibiting outdoor wear companies from selling products made of Gore-Tex at large retailers.
GORE has violated the Fair Trade Act by supplying Gore-Tex fabrics to domestic outdoor wear companies and preventing them from
selling products made of Gore-Tex (clothing and shoes) at large retailers. (Duration of violation: March 2009 to December 2012)
KOREA
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Asia-Pacific Competition Update
MyCC Introduced an E-Learning System for SMEs
In accordance with the establishment of the MyCC, one of its functions is to raise awareness among the general
public of the importance of the Competition Act 2010 (CA 2010) to consumers and its benefits as a whole to the
nation's economy. In line with this vision, MyCC has developed an “e-Learning system on Competition Compliance Programme (CCP) for Small
and Medium-Sized Enterprise (SME)” to explain the importance of complying with the CA 2010. It contains 5 modules which covers all the
bases of the CA 2010.
A certificate will be issued upon completion of all modules. The goal for this e-Learning system is to increase competition compliance as well
as awareness amongst SMEs by 2020. The portal can be accessed through http://elearning.mycc.gov.my ;
E-Learning System on CCP for SME
MyCC Extends the Liner Shipping Block Exemption
The MyCC has extended the block exemption for liner shipping agreements in respect of Vessel Sharing Agreements (VSA) and Voluntary
Discussion Agreements (VDA) made within Malaysia or which have an effect on liner shipping services in Malaysia subject to the condition that
no element of price fixing, price recommendation or tariff imposition by any person on transport users.
The Block Exemption Order (BEO) has commenced on 7 July 2017 for a period of two years or until the same is cancelled by the MyCC. The
decision was made upon consideration of the feedback from public, stakeholders of the industry and relevant government ministries over the
past 30 days starting from 11 May 2017. The application for the renewal of block exemption for VSA and VDA in respect of liner shipping
services was submitted by the Malaysia Shipowners Association (MASA) and the Shipping Association of Malaysia (SAM) on 6 March 2017.
Previously, the MyCC had granted a three year block exemption for liner shipping agreements which has expired on 6 July 2017.
MALAYSIA
The KFTC’s decision is meaningful in that it corrected bad practices of GORE, the no.1 company in the fabric market, trying to control
the sales of outdoor wear companies to their customers by using its dominant position.
It is expected that consumers will be able to purchase functional clothes at a lower price if outdoor wear companies sell Gore-Tex
products which were mainly sold in department stores at large retailers.
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News from Asia-Pacific Competition Authorities
Cartel Investigation on Price Fixing between Magnai Trade LLC and Just Oil LLC
The relevant decision was taken as a result of the investigation launched in response to the AFCCP
investigator’s decision, in order to determine whether “Magnai Trade” LLC and “Just Oil” LLC violated article 11.1.1 of the Competition
Law of Mongolia. Under Article 11.1, hard core cartels are prohibited.
Within the framework of the file, on 27 September 2013, “Magnai Trade” LLC and “Just Oil” LLC increased their retail prices for all kinds
of petrol by 50 tugriks (3.5 US Cent as 2013 currency rate) per liter. As a result, the AFCCP commissioned a working group to make an
investigation.
During the investigation, the working group detected that “Magnai Trade” LLC had bought “Just Oil” LLC’s shares and then they made its
president’s son an executive director of “Just Oil” LLC.
As for the second claim of the file, which is the claim that these two companies’ directors made a decision to increase retail prices of all
kind of petrol by 50 tugriks for per liter at same day.
It was thus considered that the two companies’ decision broke the article 11.1.1 of the Competition Law of Mongolia, “Mutually agreeing
to fix prices is prohibited”. It was decided that administrative fines of 2,368,047,972 tugriks (USD 1,691,463 as 2013 currency rate)
and 941,932,927 tugriks (USD 672,809) should be imposed on “Magnai Trade” LLC and “Just Oil” LLC, respectively, for a total of 3,3
billion tugriks (USD 2,364,272), at 1% of its gross annual revenue generated as of the end of the previous year.
Primary court’s decision: The “Magnai Trade” LLC appealed against the investigator’s decision and handed in petition to a primary court.
The primary court refused their petition. The Supreme court has upheld the primary court’s decision.
MONGOLIA
The BEO does not exempt or provide immunity in respect of any abuse of a dominant position under the section 10 of the Act. Therefore,
parties to a liner shipping agreement can still be found liable for an infringement if they are found abusing their dominant positions in the
liner shipping market. The BEO does not cover inland carriage of goods and warehousing of goods. In addition, the BEO allows liner shipping
operators to offer, on the basis of individual confidential contracting, their own service arrangements, upon certain conditions.
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Asia-Pacific Competition Update
Competition in the Pharmaceutical Sector
In May 2017, the OECD/KPC annual sector workshop took place in
Sydney, Australia. This year’s event was devoted to the application
of competition policy and rules to a very important sector in most
societies: the pharma sector and where the role of competition
agencies in many jurisdictions has increased in the last few years.
This was an event co-hosted and co-organised with the ACCC
and its CLIP programme and was represented at top level by
Mr. Roger Featherstone, Commissioner and Mr. Marcus Bezzi,
Executive General Manager, Competition Enforcement of the
ACCC and the number of the ACCC staff, as both presenters and
attendees.
The event focused not only on enforcement actions but also
undertook a wider view, examining the intersection between
competition policy and the role of R&D and patents and other
regulations. One of the initial sessions focused on the importance
of Intellectual Property (IP) in these markets, as without IP
margins on pharmaceutical products and the incentives for
R&D investment would decline with imitators free riding on
innovators’ R&D efforts, leading to less investment and less new
drugs over time. This is particularly relevant nowadays where the
development of new pharmaceuticals is an increasingly lengthy
and costly business fraught with significant risk – after years
of testing and millions of dollars the vast majority of drugs are
Sydney, 23-25 May 2017
Competition in the Pharmaceutical Sector
8
found not to be safe or effective for human use and therefore
never see the light of day in the marketplace. More generally, this
is a sector where regulation is crucial to ensure that the market
failures of patent induced market power, information asymmetry,
and market accessibility are tackled, whilst at the same time
competition plays a vital role as it is in the words of the World
Health Organization “in the last instance the key tool to drive
prices down and improve access to medicines.”1
For this workshop a wide array of experienced speakers with
extensive experience in the sector were made available by the
authorities of Korea (KFTC), EU Commission and the ACCC as
well as two speakers from the OECD.
The event started with an examination by Mr. Ruben Maximiano
of the OECD of main features of the pharma sector and of the
main competition issues found across jurisdictions. This was
followed by a session lead by Mr. Pedro Caro Sousa on the
role of IP and antitrust in Pharma, and of their interplay and
compatibility, namely with the role of competition to place limits
on the permissible scope of exclusion based on IP. Mr. Caro
Sousa also identified the main competition infringements that
include attempts to manipulate the IP and the regulatory regime.
The afternoon sessions were devoted to analyzing more
specific issues when dealing with enforcement cases, starting
with market definition, in a session presented by Mr. Ruben
Maximiano, that by examining a number of cases in a number
1. WHO “Public health, innovation and intellectual property rights”, Report of the Commission on Intellectual Property Rights, Innovation and Public Health, Geneva, April 2006.
of different jurisdictions identified some common threads and
principles that underwrite the identification of relevant markets
in the pharmaceutical sector. The remaining sessions all
dealt with anti-competitive agreements. First up was Mr. Paul
Csiszar, Director at the European Commission, that shared the
experience of the European Union in a session on horizontal
agreements in the sector, including the sector inquiry undertaken
in 2009 and then the recent pay for delay cases of Lundebeck,
Fentanyl, Servier and Cephalon. Mr. Pedro Caro Sousa continued
the theme of anti-competitive agreements by looking in depth
at a number of cases of cartels and bid rigging cases in pharma
that affected the public purse with the increase of the price of
medicines sold to public hospitals. Ms. Sunjoeng Lim, Deputy
Director of the KFTC then presented in detail the reverse
payment agreement case between GSK and Dong-a Pharm in
Korea. The final case study of the day was brought by Mr. Frans
Adiatma Senior investigator of the KPPU on the Amlodipine
Therapy case where two companies shared information about
price and production planning and thus reduced or removed
risks of competition between them.
The second day was dedicated to abuse of dominance cases,
first by Mr. Csiszar examining the main aspects of abuse of
dominance cases in pharma in the EU, and then analyzing the
Servier and Astra Zeneca cases. The ACCC then presented on
a case where it was alleged that Pfizer had a strategy to bundle
offers prior to the expiry of the its patent over atorsvastatin
(Lipitor) – a cholesterol lowering product in the statin family of
molecules, and thus attempt to delay the exposure of competition
before suppliers of generic pharmaceuticals were able to enter
Asia-Pacific Competition Update
9
the market. The following session was dedicated to an issue that
has been again making its resurgence in certain jurisdictions
and that is of great relevance to Asian jurisdictions: the issue
of excessive pricing in pharmaceutical products. This session
lead by Mr. Caro Sousa looked at the difficulties in reaching a
finding of prices being excessive and thus constituting an abuse
of dominance, and then analysed some cases which had some
particularities that allowed the UK (Pfizer and Flynn case) and
Italy (Aspen case) in 2016 reach such findings. Two cases in
the pharma sector were then shared by Mrs. Wu of the NDRC
(allopurinol cartel) and Ms. Feiyni of SAIC (hospital and pharmacy
case), respectively.
The day was closed with a Hypothetical case prepared by the
ACCC and presented by Mr. Roger Featherstone, Commissioner
of the ACCC and worked through a number of smaller teams.
The last day of the workshop served to set out the merger control
issues in the Pharma sector, with presentations from Mr. Ruben
Maximiano of the OECD as well as Mr. Stewart McKechnie,
Assistant Director of the Mergers Investigations Branch of the
ACCC. Mr. Tsai from Chinese Taipei then presented a merger
case that was analysed between Pfizer and Allergan and that
involved the analysis of the miotics and anti-glaucoma markets.
Finally Ms. Candice Lee from the Competition Commission of
Singapore presented the GSK Trading services acquisition of
UCB, which had anti-histamines, anti-epileptics as some of the
areas of overlap requiring closer analysis.
The workshop’s final session started with Mr. Ruben Maximiano
making the case for the importance of the role that competition
advocacy by the competition authority can play both in the
design of regulation as in the public procurement of medicines.
He was seconded by a presentation by Ms. Dian Retno Sari on
the role that the KPPU has played in strengthening the role of the
pharmacist with a recent policy recommendation it issued to the
Ministry of Health in Indonesia. Mr. Marcus Bezzi also shared the
experience in advocacy in the context of the sector in Australia
and the role that the ACCC has had in shaping regulation.
This was an event that allowed participants to explore in depth
a sector that has many specificities can be a rather daunting
one for newer agencies in particular. Drawing upon some very
experienced speakers it was possible to show that, where
relevant, this is a sector where competition authorities may
intervene effectively.
* Commissioner Roger Featherstone leading a hypothetical case
Competition in the Pharmaceutical Sector
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Going after Bid-Rigging Cartels
The OECD/KPC teamed up with the Authority for Fair Competition
and Consumer Protection of Mongolia (AFCCP) to host a meeting
in Ulaan Baatar in September 2017 on the topic of “Going after
Bid-Rigging Cartels”.
In total, 25 delegates from Mongolia’s AFCCP, the country’s
judiciary and its legislature participated in the event along with
another 25 delegates drawn from the staff and commissioners of
competition authorities across Asia.
In opening the event, Chairman Byambasuren (AFCCP) and Ms.
Yanjinsuren (Advisor to the Deputy Prime Minister of Mongolia)
and Director General Yoon (OECD/KPC) spoke of the importance
of cooperation between competition authorities in fighting cartels
and bid rigging.
This is the first time that the OECD/KPC has held a meeting in
Ulaan Baatar and, with a proposed law reform currently in the
pipeline, it was an important time for Mongolia to host such an
event.
The AFCCP and its predecessor have already been actively enforcing
competition laws for approximately two decades. However, the initial
law had very low maximum fines and, even when a revised law
significantly increased the penalties, it did not provide the authority
with the full “tool-box” of detection and investigatory powers such
as a leniency policy. Hence, there is now a need for a further law
reform to enable a fully effective system.
The event commenced with scene setting presentations by Mr.
Antonio Capobianco (OECD) and Mr. Nick Taylor (Consultant to
Ulaan Baatar, 13 - 15 September 2017
Asia-Pacific Competition Update
11
the OECD) on the importance of fighting cartels and bid rigging
and on detecting such practices.
Mr. Jinseok Park (KFTC) gave a presentation on Korea’s experience
with detecting and prosecuting bid rigging in a range of tenders
for major public works projects. Mr. Masakazu Okumura (JFTC)
and Ms.Sara Rodrigues (Portuguese Competition Authority) gave
presentations on investigation techniques building a case.
On the final day, Ms. Rodrigues also presented on her agency’s
strategic plan for fighting bid rigging, Mr. Taylor presented on
fines and sanctions and Mr. Capobianco gave a presentation
about the OECD’s work concerning international cooperation
between competition authorities.
Presentations on particular enforcement experiences from in
their home countries were provided by Mr. Hong Wei Fu (CTFTC),
Ms. Anudari Nyamdorj (AFCCP), Mr. Alok Tripathi (CCI), Mr. Abdul
Hakim Pasaribu (KPPU), Mr. Shahzad Hussain (CCP).
In two hypothetical exercises, the delegates variously role-
played cartelists seeking to conceal illegal behaviour, government
procurement officials redesigning their procurement processes to
avoid and detect bid rigging and competition authority investigators.
Going after Bid-Rigging Cartels
12
Hearing on Radical Innovation in the Electricity Sector The OECD hosted a Hearing to explore the implications for
competition agencies of radical innovation in the electricity
sector. A variety of new business models are competing and that
will lead to significant changes in the industry. An example is the
sharing economy that offers the prospect of peer-to-peer energy
trading between ‘pro-sumers’ (producer-consumers) using
block-chain technology (Airbnb for the electricity market).
The Hearing looked at whether regulation is keeping pace with
changes, particularly regulation of the grid, and how competition
agencies might advocate to help ensure that competition
between different business models (both old and new) works
for consumers. It also looked at the ways in which incumbents
(distributors or utilities) might respond and how competition
agencies might distinguish between pro- and anti-competitive
responses when using their enforcement powers.
Link: http://www.oecd.org/daf/competition/radical-innovation-
in-the-electricity-sector.htm
Guidelines to Help Ensure that the Public Procurement Process Remains Competitive Delegates discussed the second draft of the Committee’s
contribution to the new OECD Procurement Toolbox developed
by the Governance and Territorial Development Directorate
(GOV). The revised guidance consists of two checklists to help public
procurement officials keep procurement processes competitive
when dealing with abnormally low bids or splitting contracts into lots.
Roundtable on Methodologies for Conducting Market Studies This session explored the various information collection and
analytical methodologies used in market studies, as well as some
common considerations regarding their selection and application.
Information gathering methodologies include preliminary
background research, surveys, stakeholder consultations and
formal information requests. Analytical methodologies can be
guided by an initial market structure mapping process, and
include price analysis (such as price comparisons and profitability
analysis), supplier-focused analyses (including an assessment of
firm practices and barriers to entry), demand-focused analyses
(for instance consumer preferences) and assessments of the
competition impact of regulation in the sector(s).
Link: http://www.oecd.org/daf/competition/market-study-
methodologies-for-competition-authorities.htm
Monitoring the Implementation of the 1998 Hard Core Cartel Recommendation This meeting discussed developments in the implementation of
the 1998 Recommendation concerning Effective Action against
Hard Core Cartels. This Recommendation calls upon jurisdictions
to ensure that they provide for effective sanctions, agencies,
enforcement procedures and investigative tools against hard
core cartels. Anti-cartel enforcement has been a priority of
competition law enforcement in OECD jurisdictions before and,
particularly, after the adoption of the Recommendation.
The discussion benefited from a review of the replies to a
questionnaire that was sent to delegates in March 2017.
OECD Competition Committee Meetings, 19 – 23 June 2017
Asia-Pacific Competition Update
13
Roundtable on Competition Issues in Aftermarkets The Competition Committee organised a Roundtable on
Competition Issues in Aftermarkets. Aftermarkets are markets for
the supply of products or services needed for or in connection
with the use of a relatively long-lasting piece of equipment that
has already been acquired.
The roundtable offered an opportunity to compare national approaches
to questions that can arise under competition law when aftermarkets
are involved, such as: (i) the economic and legal theories to support
competition intervention in aftermarkets; (ii) the enforcement
challenges that competition authorities face in aftermarkets cases; (iii)
the policy rationale for competition in aftermarkets.
Delegates discussed also whether the relevant market for the
competitive analysis consists of separate markets for primary
and secondary products, or whether it is a market for “systems”
consisting of both primary and secondary products; when, if at
all, the supplier of the primary product has market power in the
aftermarket and, if it has, what pricing and non-pricing conduct may
amount to an abuse of dominance prohibited by competition laws
and under what conditions; and what remedies exist to aftermarket
monopolisation concerns under antitrust law and beyond.
Link: http://www.oecd.org/daf/competition/aftermarkets-
competition-issues.htm
Hearing on Rethinking the Use of Traditional Antitrust Enforcement Tools in Multi-sided Markets As part of the strategic theme on Competition, Digital Economy
and Innovation the Competition Committee hosted a Hearing to
discuss the use of traditional antitrust enforcement tools in multi-
sided markets. The Hearing looked at an important question
that competition agencies face: are the tools to define markets,
to assess market power, the hypothetical monopolist test, etc.
sufficient to address questions in multi-sided markets?
The Secretariat invited economists from academia and chief
economists from agencies to present and discuss methodological
proposals to deal with such recurring questions for many
competition agencies. All the contributions will be collected in a
publication by the Secretariat.
Link: http://www.oecd.org/daf/competition/rethinking-antitrust-
enforcement-tools-in-multi-sided-markets.htm
Roundtable on Algorithms and Collusion The Roundtable on Algorithms and Collusion followed up on some
of the themes emerged in the Hearing on Big Data from December
2016. There is an increasing tendency from firms to use pricing
algorithms that speedily react to market conditions, such as the
ones used by major airlines and online retailers. While there are
few cases where agencies have looked at how pricing algorithms
may facilitate collusion, there is an increasing body of literature
looking at how the availability of large data sets combined with
artificial intelligence might change business incentives and
behaviours. This literature raises the question of whether antitrust
agencies should revisit traditional antitrust concepts, such as the
concepts of agreement, or reconsider the boundaries between
tacit/explicit collusion, and their legality and whether any antitrust
liability can be imposed on the algorithms’ creators and users.
The roundtable discussed how the combination of data with
technologically advanced tools such as pricing algorithms,
programming tools and machine learning technology may
change the competitive landscape, by allowing firms to signal an
attempt to coordinate strategies or to achieve collusive outcomes
in novel ways that do not necessarily require formal agreements
or even human interaction.
OECD Competition Committee Meetings
14
Governments regularly buy goods and services from the private
sector, for projects ranging from complex building works to
ordering office supplies. The sums involved are huge: public
procurement represents approximately 12% of gross domestic
product and 29% of general government expenditures in OECD
countries1, and these numbers can be higher in developing
countries. Governments, and public procurement agencies in
them, are aware of the need to spend public money wisely.
This awareness of the importance of doing more for less, and
the role of competition in public procurement to achieve this
goal has increased in the last few years. Can public buyers be
sure that the private sector offers them value for money, and
that companies bidding for public contracts really compete on
price and quality, thus allowing public buyers to choose the best
solutions that the market has to offer?
The enforcement records of competition authorities in OECD
and non-OECD countries shows that there are good reasons
to worry about the effectiveness of competition for public
contracts: a significant share of cartel enforcement in many
countries concerns cases of suppliers rigging their bids for
public contracts2. Bid rigging consists in suppliers agreeing
among themselves not to compete, and artificially raise the
prices or lower the quality that they offer to the public sector; a
successful bid rigging scheme results in suppliers getting paid
more while delivering less. Studies show that bid rigging can
1 OECD (2017), Government at a Glance 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/gov_glance-2017-en
2 OECD (2013), Policy Roundtables: Ex officio cartel investigations and the use of screens to detect cartels, www.oecd.org/daf/competition/exofficio-cartel-investigation-2013.pdf
add very significant surcharges to prices (20% or more)3, costing
billions of dollars every year in taxpayers’ money, depriving the
public sector of genuine opportunities to achieve value for money
and damaging the outcomes and integrity of public procurement
procedures.
Over the years, the OECD has developed extensive work to
help governments, public procurement agencies and officials
understand the risks, costs and forms of bid rigging, and prevent,
detect and punish it.
1. Developing a Framework to Fight Bid Rigging in Public Procurement: The OECD Recommendation and Country Implementation Actions.
The OECD has researched and developed best practices on
fighting cartels since 1998, when it adopted the Recommendation
concerning Effective Action Against Hard Core Cartels4. The
importance of fighting bid rigging in public procurement was such
that over the years the OECD developed first Guidelines, and then,
in 2012, a Recommendation on Fighting Bid Rigging in Public
Procurement (the “Recommendation”)5, which incorporates the
Guidelines and consolidates OECD good practices to make public
procurement processes competitive and free from collusion.
3 Smuda, F. (2015), Cartel Overcharges and the Deterrent Effect of EU Competition Law, Centre for European Economic Research Discussion Paper No. 12-050, ftp://ftp.zew.de/pub/zew-docs/dp/dp12050.pdf
4 www.oecd.org/daf/competition/recommendationconcerningeffective actionagainsthardcorecartels.htm
5 www.oecd.org/daf/competition/fightingbidrigginginpublicprocure ment.htm
Fighting Cartels in Public Procurement: Policy and PracticeDespina Pachnou, Competition Division, OECD
Asia-Pacific Competition Update
15
The Recommendation identifies the following priority areas of
action for countries:
• Assess public procurement laws and practices and how
they affect collusion between bidders.
• Deter bid rigging at the front end of public procurement,
by designing procurement regulations and public tenders
which promote competition and reduce the risk of collusion.
• Ensure that public procurement officials are aware of
market structures and bidding behaviour that may indicate
collusion, so that suspicious activities can be detected,
reported to competition authorities and investigated.
• Measure and monitor the impact of public procurement
laws and regulations on competition over time.
National competition authorities provided their insights and
inputs in developing the Recommendation and, following its
adoption, played a crucial role in its dissemination and the
consolidation of good practices in their countries. Recently,
competit ion authorit ies reported to the OECD that the
Recommendation helped inform and shape country activities and
reforms, and is often relied on to develop national strategies on
fighting bid rigging, design guidelines and training materials for
public procurers on pro-competitive tender design, and develop
bid rigging detection tools6. The Recommendation has been
instrumental in helping several competition authorities launch
advocacy programmes and raise awareness of bid rigging risks.
2. Carrying Out in-country Projects to Help Fight Bid Rigging
Policy guidance provided by the Recommendation is not always
sufficient. Some countries, and the competition and procurement
authorities in them, identified the need for specific OECD support
6 OECD (2016), Fighting bid rigging in public procurement: Report on implementing the OECD Recommendation, www.oecd.org/daf/competition/Fighting-bid-rigging-in-public-procurement-2016-implementation-report.pdf
to raise awareness, screen public procurement rules and
practices, recommend ways to prevent and detect bid rigging
cartels in accordance with the Recommendation, and equip the
procurement workforce with relevant knowledge and skills.
Between 2011 and 2017, at the request of domestic procurement
entities, the OECD, in close co-operation with the national
competition authority, carried out eight such projects in Mexico
and Colombia, to help procurement agencies and their staff
design better procurements, and detect cartels more easily7. The
projects adapted to domestic requests and needs: they assessed
procurement rules and practices at national level (e.g., for
Colombia8) and subnational level (e.g., for the State of Mexico9),
in the healthcare sector (e.g., for the Mexican Institute of Social
Security -IMSS10 and the State’s Employees’ Social Security and
Social Services Institute in Mexico -ISSSTE11) and the energy
sector (e.g., for the Mexican electricity utility Comisión Federal
7 www.oecd.org/daf/competition/fightingbidrigginginpublicprocure ment.htm
8 OECD Competition Committee (2014), Fighting Bid Rigging in Public Procurement in Colombia, A Secretariat Report on Colombian Procurement Laws and Practices, at www.oecd.org/daf/competition/Booklet_SIC%20Procurement%20Report_16X23_REV_web.pdf
9 OECD (2012), Fighting Bid Rigging in Public Procurement in Mexico, A Secretariat Analytical Report on Procurement Legislation, Regulations and Practices in the State of Mexico, at http://www.oecd.org/daf/competition/GEM_Report_2012_English.pdf
10 OECD (2011), Fighting Bid Rigging in Public Procurement in Mexico, A Secretariat Report on IMSS’ Procurement Regulations and Practices, at www.oecd.org/daf/competition/abuse/49390114.pdf. The OECD is currently conducting an ex post evaluation of the implementation by IMSS of the 2011 OECD recommendations; the project will be completed in 2018.
11 OECD Competition Committee (2013), Fighting Bid Rigging in Public Procurement in Mexico, A Secretariat Analytical Report on Legislation, Regulations and Practices Relating to Procurement Undertaken by ISSSTE, at www.oecd.org/daf/competition/Mexico ISSSTEBidRiggingENG.pdf
Fighting Cartels in Public Procurement: Policy and Practice
16
de Electricidad -CFE12, and the national oil company Petróleos
Mexicanos -PEMEX13).
Core Elements of OECD in-country Projects on Fighting Bid Rigging
The OECD in-country projects on fighting bid rigging have three
main aspects:
(i) Review the relevant procurement regulatory framework
and buying practices, and recommend reforms in light of the
Recommendation, with inputs from the national competition
agency.
(ii) Train, together with the national competition agency, the
procurement decision-makers and operational workforce on
designing tenders so as to reduce the risk of anti-competitive
agreements, and detecting possible cases of bid rigging during the
tender process through a system of red flags. This helps domestic
officers implement the OECD recommendations, and provides them
with expertise and skills which remain after the projects are over.
(iii) Enable the meeting of public procurement and competition
communities, the exchange of ideas, and the building of channels
to ask for advice (from the competition authorities) and report
suspicions of collusion (to the competition authorities).
To carry out the projects, the OECD meets with public and private
sector stakeholders, trains hundreds of procurement officials in
the different institutions, and organises public events to raise
awareness of the risks and costs of bid rigging, and what actions
are necessary to fight it.
Each project analysis differs depending on the relevant
procurement entity, the rules and practices that it follows, and
the procurement workforce that it employs. However, the OECD
identified several common concerns which may restrict public
procurement agencies’ ability to purchase at competitive terms.
These include:
12 OECD (2015), Fighting Bid Rigging in Public Procurement in Mexico, A Secretariat Analytical Report on Compliance with OECD Standards of Procurement Legislation, Regulations and Practices in CFE, at www.oecd.org/daf/competition/fighting-bid-rigging-mexico-cfe-report-2015.htm. The OECD has reviewed the new procurement regime applicable to CFE in 2017, and will release a new report in January 2018.
13 OECD (2016), A Review of the Procurement Rules and Practices of PEMEX in Mexico, www.oecd.org/mexico/fighting-bid-rigging-mexico-pemex-review-2016.htm
• Barriers to entry limiting bidders’ participation in tenders,
for example restricting participation to domestic bidders
only, reduce the number of potential bidders, and allow
easier coordination among the fewer remaining ones.
• Excessive and unjustif ied use of non-competit ive
procurement procedures like direct awards to suppliers
without a tender remove competition and reduce the
likelihood of obtaining commercially competitive offers.
• Certain transparency requirements, like disclosing
the identity of bidders, reference prices and detailed
procurement schedules, may facilitate collusion, as they
make it easier for bidders to identify each other and attempt
to collude, as well as, following their agreement, detect and
punish deviations from their conspiracy.
• Regular procurement opportunities allow suppliers to share
contracts and markets. If the distance in time between
tenders is sufficiently long or irregular, and if the tender
opportunities vary in size and content, firms have fewer
incentives and opportunities to engage in successful collusion.
Likewise, though advice varies from one project to another,
common recommendations have emerged.
Common OECD Recommendations in in-country Projects on Fighting Bid Rigging
The risk of collusion can be reduced if certain actions are followed:
- Procurement agencies should collect detailed and up-to-date
information on the demand (other procurers) and supply market
before launching a tender. A specialised procurement market
intelligence unit and robust databases on past procurements for
benchmarking are key factors of success.
- Tenders should be carried out at irregular time intervals, and for
dissimilar amounts and quantities, to make collusive agreements
difficult to reach.
- Tenders should be open to as many suitable bidders as possible.
Limitations to participation in tenders, like restricting the access
of foreign suppliers or of smaller firms, should be justified and
proportional and abolished if they are not.
- Bidders’ identities and the terms of bids should not be disclosed.
Asia-Pacific Competition Update
17
- Bidders should not have opportunities to meet and communicate
before and during the tender process.
- Fully developed electronic procurement systems should be used
at all times.
- The procurement workforce should be regularly trained on
how tenders can be better designed, and how collusion can be
detected by identifying warning signs during the tender process.
- Co-operation, information sharing, and communication channels
with the national competition authority is crucial.
Several OECD recommendations made in the context of projects
were successfully implemented.
Examples of Successful Implementation of Recommendations in OECD Projects
- The Mexican Social Security Institute IMSS reformed its
procurement processes for medicines in accordance with OECD
recommendations. In 2016, IMSS asked the OECD to conduct
an ex post assessment of the implementation of the OECD
recommendations. The OECD will estimate the impact of the
implemented recommendations on IMSS procurement outcomes,
carry out case studies in some products or services and will
provide an action plan to help IMSS follow the recommendations
that have not yet been adopted.
- The Colombian compet i t ion author i ty fo l lowed OECD
recommendations to set up a special group against bid
rigging, and launch a partnership with the Colombian national
procurement agency to facilitate information exchange, study
procurement issues with competition implications, and allow the
early detection of cases.
- The Mexican electricity utility Comisión Federal de Electricidad
CFE, following OECD recommendations, now requires bidders
to submit as part of their offer a certificate of independent bid
determination, i.e. a declaration by the bidder indicating that its
bid is independent from others. Also, acknowledging that the
publication of CFE’s full annual procurement programme may
provide information crucial for the formation of cartels, CFE now
publishes a shorter version of the programme containing only
general, non-confidential data.
- The Mexican Competition Commission (Comisión Federal de
Competencia Económica, COFECE issued recommendations on
promoting competition in public procurement which draw on and
refer to the OECD Guidelines for Fighting Bid Rigging in Public
Procurement.
Sources: www.oecd.org/daf/competit ion/oecd-applauds-
mexico-decision-on-reverse-auctions-for-medicines.htm; OECD
(2016), Fighting bid rigging in public procurement: Report on
implementing the OECD Recommendation, www.oecd.org/daf/
competition/Fighting-bid-rigging-in-public-procurement-2016-
implementation-report.pdf; OECD (2017), Fighting bid rigging at
CFE: an overview of the new procurement regime (forthcoming);
ht tps://www.cofece.mx/cofece/attachments/art ic le/38/
RecomendacionesContratacionPublica-v2.pdf
Key aspects of success of the OECD fighting bid rigging projects
are the openness and willingness of the procurement entities to co-
operate with the OECD, share data and follow recommendations,
the strong engagement of the domestic competition authorities,
and the involvement of parts of the central government.
Factors for Success for OECD Fighting Bid Rigging Projects
- Projects are requested by the procurement entities, and strongly
supported by their senior management.
- Other agencies and the central government are regularly
updated on the project, to ensure buy-in for required legal and
institutional reforms.
- The OECD engages closely with the domestic competition
authority, thus ensuring country-specific knowledge, enhancing
the skills of the authority itself, and building trust.
- Several private sector stakeholders are consulted.
- Projects benefit from local teams and international experts who
share their own experiences in this area.
- The project recommendations are launched in public events
which help raise awareness of the benefits of better public
procurement and stronger competition enforcement.
Fighting Cartels in Public Procurement: Policy and Practice
18
OECD/KPC Competition Programme 2017
Bi-lateral Seminar: Fines and LeniencyDevelopment of an enforcement regime for administrative fines and penalties, leniency, and remedies. The workshop would focus on helping the PCC to develop its own Guidelines for Fines and Penalties, Leniency, and Remedies
Philippines
April 3-4
Judge Workshop: Market Definition and Significant Market Power as Cornerstones of Competition LawThis event will examine all the legal and economic aspects of a relevant product and geographic market as well as the legal test of significant lessening of competition (or similar) used in jurisdictions in Asia, all across competition law instruments (mergers, agreements and abuse of dominance). We will analyse:
• Lawandeconomicsofabuseofdominance• Exclusionarypractices• Recentdevelopments
Philippines
April 5-7
Sector Specific Workshop: Competition Rules and the Pharmaceutical SectorThis event will analyse the role of competition law in the pharmaceutical sector by looking at cases that deal with:
• Mergercontrol• Distributionagreements• Payfordelayagreements• TheRoleofIPandRegulation• Relationshipwithgovernmentandotherregulators
Australia
May 23-25
In-country Workshop – Going after Bid-Rigging CartelsPublic procurement is very important all over the world and in Asia, and the bid rigging can significantly increase prices of goods and services, diverting public money that could be best used in public services to the pockets of cartelists. Fighting Bid Rigging is therefore a top priority for many competition agencies. To equip agencies to better fight bid rigging, this workshop will focus on:
• Competitionpolicyandeconomicdevelopment• Detectingandinvestigatingbidrigging• Cooperationwithprocurementofficials• Leniencyandsanctionsinbidriggingcases
Mongolia
September 13-15
In-country Workshop – Best Practices in Cartel ProceduresThe seminar could provide training on:
• Preparationandexecutionofdawnraids,• Handlingofevidence• ForensicITtechniquesandteamworkincomplexcartelcaseinvestigationsIndia
October 24-26
Regular Workshop: Market StudiesThese are studies used to gaining understanding of how sectors and markets work and identifies any competition issues and possible recommendations, advocacy and SOEs.Emphasis of the workshop on
• Designingandsettingupmarketstudies• Sharinginternationalbestpractices
Korea
November 14-16
Asia-Pacific Competition Update
19
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CONTACT INFORMATION
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OECD/KOREA Policy Centre
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03061, Korea
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Ruben Maximiano, Senior Competition Expert
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Hye Kyoung Jun, Senior Program Coordinator
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Asia-Pacific Competition Update
Asia-Pacific Competition Update